Are Intragovernmental Holdings Real Debt?

By Scott Anderson – Re-Blogged From Seeking Alpha

[This article orignally was written over 5 years ago. I’ve update the numbers to today. -Bob]

As everyone who is paying attention knows, the amount of US debt outstanding is fast approaching $20.5Trillion. But whom do we owe it to? Most of the debt, about $14.8T of it, represents debt held by the public. This portion of the debt is easy to comprehend. It could be bonds held by investors, savings bonds given to children, bonds purchased by the Chinese government, or even bonds purchased by our good buddies at the Federal Reserve. The remaining balance of $5.7T, known as “Intragovernmental Holdings,” is what I would like to discuss today.

Intragovernmental Debt represents money we owe to ourselves. At $3+T, the Social Security Trust Fund is the largest and most recognizable portion, with most of the balance being similar programs for government employees and the military. All of this adds up to $5.7T. At this point, you may be wondering how exactly one would go about getting in debt to his/herself. For an example, let’s take a trip back in time and assume that in a given month, the government collects $75B in Social Security taxes deducted from paychecks, but only makes Social Security payments of $50B. The $25B balance is spent by the general fund, and a $25B I.O.U. is penciled in on the balance sheet as “Intragovernmental”. So the real question becomes, can you really owe yourself money? I think the answer is no, and that the whole concept of Intragovernmental Holdings is just an accounting farce. In reality, the $5.7T balance of Intragovernmental Holdings simply represents an up to date tab of the amount already spent.

Let us suppose that a bright young 22 year old accounting graduate decides to employ a similar retirement strategy. Out of each paycheck, he sets aside 10% for his retirement, but then promptly spends it on pizza and beer. But not to worry, this bright young accountant diligently records these transactions on his personal ledger as both an asset and a liability. 45 years later, he reaches retirement with well over $1M “saved”. He then goes on to enjoy his dream retirement, right? Of course not, because the very notion of owing yourself money is slightly moronic. And yet here we are talking about $5.7 Trillion we supposedly owe to ourselves.


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